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The Euro extended the decline from earlier this week as the European Central Bank’s unlimited bond purchase program came under increased scrutiny, and the single currency may track lower over the remainder of the week as the debt crisis continues to dampen the fundamental outlook for the region.

The Euro weakened to 1.2998 as former European Central Bank board member Otmar Issing struck a cautious tone and warned that ‘the medicine of bond purchases hasn’t had a sustainable impact so far,’ while Bundesbank President Jens Weidmann argued that the Outright Monetary Transactions puts the central banks credibility at risk as the expanding balance sheet raises the threat for inflation.

At the same time, Euro Group President Jean-Claude Juncker signaled that the measures taken by the ECB ‘will certainly not be enough to stem the crisis,’ and the Governing Council may have little choice but to further embark on its easing cycle over the remainder of the year as the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support.

With Spain scheduled to auction 3 and 10-Year bonds on Thursday, the efforts taken by the ECB may help to produce a favorable outcome, but a dismal debt sale may put increased pressure on the single currency as the debt crisis continues to drag on the real economy. As the EURUSD fails to put in a close above the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3120-30, the pair appears to have carved out a lower top in September, and the euro-dollar should continue to give back the advance from earlier this month as the relative strength index falls back from overbought territory. In turn, we may see the EURUSD fall back towards the 23.6% Fib around 1.2640-50 to test for interim support, but we will maintain our bearish forecast for the single currency as the euro-area faces a deepening recession.

The British Pound is struggling to hold its ground on Wednesday even as the Bank of England scaled back its forecast for undershooting the 2% target for inflation, and the GBPUSD may weaken further over the next 24-hours of trading as market participants scale back their appetite for risk.

Indeed, the BoE Minutes showed the Monetary Policy Committee voting unanimously to maintain its current policy in September, but the central bank appears to be softening its dovish tone for monetary policy amid the stickiness in price growth. As the MPC now sees inflation ‘more balanced around target,’ the central bank may continue to endorse a wait-and-see approach over the coming months, and it seems as though the BoE will slowly move away from its easing cycle as economic activity in the U.K. picks up.

Nevertheless, as the RSI on the GBPUSD falls back from a high of 79, the pullback from the monthly high (1.6272) should turn into a larger correction, and we may see the pair make a run at former resistance (1.5780), which should act as new support.

The greenback continued to retrace the sharp decline from earlier this month, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) climbing to an overnight high of 9,845, and the reserve currency may appreciate further during the North American trade as market sentiment falters.

Although U.S. Housing Starts increased 2.3% in August versus forecasts for a 2.8% print, we’re expecting another 2.0% rise in Existing Home Sales, and a positive development may increase the appeal of the dollar as the data dampens the scope for additional Fed support. In turn, the rebound from 9,740 may continue to pick up over the remainder of the week, and we will be keeping a close eye on the slew of central bank rhetoric on tap for the coming days as the Fed keeps the door open to expand monetary policy further.